Le Victoria Resort & Spa
Le Victoria Resort & Spa

Investors may no longer be queuing up to take a bet on the African growth story.

But not everyone has cut their losses and turned their backs on the continent. Bronwyn Corbett, who heads Mara Delta, the JSE’s first pure pan-African focused property counter, remains bullish on Africa’s growth prospects.

"There’s still good money to be made in Africa," she says. "But it’s now more of an income than a capital growth play. Where else in the world can you get a US dollar-based dividend yield of 7% growing at 3%-6%/year?"

For the 35-year-old chartered accountant Africa was never going to be a quick in and out.

"We were always in it for the long haul. Too many investors entered Africa with a short-term view and promises of unrealistic returns. Those guys have been weeded out."

Corbett concedes that the commodity price slump and currency issues that have dogged many African countries over the past 18 months have raised the risks, forcing developers, financiers, private equity and property funds alike to re-assess their investment plans.

She says now, more than ever, you have to be hands-on and have an asset management team with in-depth knowledge of local markets on the ground.

Also, Mara Delta’s focus is on strong counter-party leases. In other words, the company only invests in buildings they can fill with quality, blue-chip tenants — preferably offshore entities that pay rent in US dollars.

"That’s the only way to deliver sustainable income growth to investors,’’ says Corbett.

Known for her work ethic and deal-making prowess, she cut her teeth in property when she joined entrepreneur Sandile Nomvete’s Motseng Investment Holdings in 2009.

In 2012, she was instrumental in listing Motseng’s government-tenanted office portfolio on the JSE as Delta Property Fund, one of the bourse’s first empowerment property stocks. In 2014, she co-founded and listed the group’s African arm (excluding SA) then known as Delta International, first on the AltX and a few months later on the Stock Exchange of Mauritius.

Since then, it has been somewhat of an uphill battle. Initially, the company struggled to set up debt-funding structures outside SA and property acquisitions in Morocco and Mozambique took longer to transfer than anticipated. Former CE Louis Schnetler’s unexpected departure within less than 12 months of his appointment also weighed on the share price.

Le Cannonier Resort & Spa
Le Cannonier Resort & Spa

In addition, the move to the JSE’s main board in July 2015 took longer than expected. Then investment sentiment was dented by the oil and commodity price slump that hit Africa in mid-2015 and the weaker economic growth outlook and wild swings in local exchange rates.

But Corbett stuck to her guns. Despite the various headwinds facing the company, she secured the backing of two of SA’s largest institutional investors, the Public Investment Corp and Stanlib, which own 29% and 8% respectively of Mara Delta. She also delivered on her growth promises, increasing assets more than threefold since listing — from less than US$140m in mid-2014 to $504.4m at the moment (including recent acquisitions not yet transferred).

That has taken the number of properties in Mara Delta’s portfolio from two buildings in 2014 — the Anadarko office block in Maputo, Mozambique and Anfaplace shopping centre in Casablanca, Morocco — to 19 today. At the same time, the company’s African footprint has been extended to three other countries including Zambia (where Mara Delta owns stakes in three shopping centres), Kenya and Mauritius.

Of particular interest is Mara Delta’s recent entry into the Mauritian hospitality sector through the acquisition of a 44.4% stake in three four-star Beachcomber hotels (Le Victoria, Le Canonnier and Le Mauricia) and full ownership of one four-star Lux Resorts hotel (Tamassa). At the same time Corbett and her management team last year relocated to Grand Baie, Mauritius to set up the company’s new head office.

The acquisition of the four hotels for a combined US$95.3m takes the company’s exposure to Mauritius, in terms of asset value, to 21%. It will no doubt place Mara Delta on the radar of investors who may previously not have given the counter a second glance.

Liliane Barnard, CEO of Cape-based boutique property investment managers Metope, says Mara Delta’s newly acquired Mauritian assets will help to diversify the portfolio away from perceived higher-risk African countries.

Barnard says the Beachcomber and Lux deals also diversify Mara Delta’s predominantly US dollar-based income stream, as all four hotels pay rentals in euros.

"In addition, it’s comforting that Mara Delta doesn’t take any operational risk and isn’t exposed to potential fluctuations in occupancies or revenue, given that the deals were concluded on a fixed-income sale and leaseback basis at attractive yields of respectively 7.5% and 8% in euros."

Stanlib property analyst Lawrence Koikoi says the average occupancy of 90%-plus achieved by all four hotels over the past year is impressive. He also likes the fact that the Indian Ocean island has a diverse and growing tourist base. It is largely a mix from France, Britain, Germany, SA and nearby Reunion. Koikoi says Mauritius is also starting to target Chinese tourists. "So the market is well protected against any potential dip in tourist arrivals from one particular region."

He notes that Mara Delta’s tie-up with two large and reputable hotel operators, Beachcomber and Lux, opens the door for further acquisitions.

It seems Mara Delta’s entry into the Mauritian hospitality sector couldn’t have been better timed. Xander Nijnens, senior vice-president of the hotels & hospitality group for sub-Saharan Africa at Jones Lang LaSalle, says tourist arrivals in Mauritius were up 10.8% (to 1.28m) last year.

That compares to 3.9% growth in global tourist arrivals. Tourist arrival growth has already had a positive impact on hotel occupancies and revenues.

Following very little hotel demand growth in Mauritius between 2010 and 2014, Nijnens says the country had a marked uptick in average occupancy in 2015 to 74.6% (from 65.2% in 2014), which further accelerated to 76.5%
last year. "Mauritius is now nearly back to
its 2007 pre-crises high when occupancies peaked at 78%."

Average daily room rates also grew 5.3% last year (to $183). Nijnens ascribes the growing popularity of Mauritius as a beach holiday destination to an increasingly liberal air-access policy, which has promoted additional airlift into the country.

Bronwyn Corbett
Bronwyn Corbett

Emirates, for instance, recently introduced three daily flights to Mauritius from Dubai. He says Mauritius has also lured tourists away from European beach destinations, such as Turkey, that are experiencing increased security issues.

"In the long term, the Mauritian hospitality industry’s prospects remain strong with a diversifying tourism demand base with a hotel sector that offers great service and is dominated by strong local resort operators who understand their market exceptionally well."

Corbett, understandably, is keen to grow exposure to Mauritius to up to 30% of group assets. She is already looking at other potential hotel deals.

"Mauritian hospitality groups have typically sat with high gearing and are struggling to access capital to fund expansion and refurbishment projects. So there are fantastic partnership opportunities for investors who can provide these operators with fresh capital."

However, she says real estate in Mauritius is more expensive, with more muted dividend growth prospects, than in higher-risk African countries.

"The challenge is to get the balance right between one’s exposure to jurisdictions with varying risk-return profiles."

Mara Delta appears undervalued at current levels of R17.90, which places it at forward dividend yield of 9.75% — significantly higher than the average 7.5% on offer from the SA-listed property sector as a whole.

Dividend growth of 3%-6%/year is expected over the next three to five years. This is attractive, considering dividends are US dollar-based.

Mara Delta is also the only stock on the JSE that provides SA investors with exposure to the buoyant hospitality industry in Mauritius.

Liquidity is a downside but should improve as the fund continues to grow in size and stature.

* Muller was on a site visit in Mauritius as a guest of Mara Delta

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